If Consumers Want Consumption to Be as Constant as Possible

question 6

Multiple Choice

If consumers want consumption to be as constant as possible over their life cycles and income rises gradually over their periods of employment, then if borrowing constraints prevent their wealth from falling below zero:

• A) they can achieve constant consumption by borrowing.
• B) their consumption in retirement will be higher than it was in earlier parts of the life cycle.
• C) their consumption during their younger years will be lower than it will be in later parts of the life cycle.
• D) their consumption during their later working years will be higher than it was or will be in other parts of the life cycle.

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Definitions:

Open Policy

An insurance policy that provides coverage for all shipments or transfers under certain conditions over a specific period of time without the need for individual certificates.

Fair Market Value

The price that a property would sell for on the open market, where both buyer and seller have reasonable knowledge of all pertinent facts.

Increase Of Hazards Clause

A provision in insurance policies that allows the insurer to deny coverage if the insured significantly increases the risk or hazard insured against.

Highly Explosive Material

Substances that have a rapid and violent chemical reaction causing an explosion.